Murdoch’s Shine Deal Under Microscope

Did Rupert Murdoch overspend for daughter Elisabeth’s Shine Group? A shareholder lawsuit filed March 16 by New York-based Amalgamated Bank against Rupert, sons James and Lachlan and other News Corp.directors over the $675 million deal to acquire the producer of such reality TV hits as The Biggest Loser and MasterChef claims rampant “nepotism” within the company, which is called “a wholly owned family candy store.” Shareholder lawsuits typically follow big corporate transactions. But securities lawyer Francis Pileggi says the News Corp. shareholders likely will focus on the family’s connections, seeking testimony of investment bankers who have worked on comparable deals to show “no person would reasonably have purchased (Shine) on similar terms.” The outcome could come down to the legal standard a Delaware judge wishes to apply. The so-called “Business Standard” rule would give News Corp.’s directors wide latitude on big purchases. But if the judge chooses the “Entire Fairness” test, News directors would be subject to greater scrutiny — especially because Rupert has said he wanted to bring Liz back to the company. “Usually when you allege a self-dealing transaction where the directors have a personal stake, the burden of proof shifts to the defendant,” says Brian Robbins of Robbins Umeda. That shift could force Murdoch, 80, to address larger succession issues. “99.99 percent of these cases settle before they go to trial,” says Pileggi, citing a similar suit against Barnes & Noble founder Leonard Riggio for acquiring a family member’s division. Still, a settlement would be subject to a judge’s blessing.